NISA: Losing Tax-Free Benefits

theclarkofben

I'm really confused about NISAs and the loss of tax-free entitlement.

If I save £10,000 in a NISA and then withdraw £1000 does that mean I lose tax-free interest on the whole remaining balance of the account (£9000)?

If you withdraw does that mean the whole NISA account has it's tax-free entitlement taken away?

Archi_Bald

theclarkofben wrote: »

If I save £10,000 in a NISA and then withdraw £1000 does that mean I lose tax-free interest on the whole remaining balance of the account (£9000)?

No you don't. Anything remaining in the [cash] ISA will earn tax free interest.

theclarkofben wrote: »

If you withdraw does that mean the whole NISA account has it's tax-free entitlement taken away?

No.

You would, however, most likely do a lot better putting money that you expect to spend in the short and medium term into one or more high-interest paying current accounts. Cash ISA interest rates yield a lot less than some current accounts rates after tax.

LXdaddy

theclarkofben wrote: »

If I save £10,000 in a NISA and then withdraw £1000 does that mean I lose tax-free interest on the whole remaining balance of the account (£9000)?

If you withdraw does that mean the whole NISA account has it's tax-free entitlement taken away?

No.

If you deposit £10,000 into a NISA at the start of the tax year say and then withdraw £1,000 6 months later. If the Interest rate is 2% (for ease of calculation)...

You will earn 2% interest on £10,000 for the first 6 months of the year (£100) and 2% interest on £9,000 for the second half of the year (£90) - ie £190 interest in total. This interest is tax free.

Obviously the £1,000 you withdraw doesn't earn interest after you have withdrawn it unless you put it into a different interest bearing account.



The only constraint is that if you withdraw money from a NISA and then try and re-deposit it into a NISA it is considered "new" money.

So if you deposit £10,000 into a NISA account and subsequently withdraw £7,000 (leaving £3,000) you can't add more than £5,000 into the NISA because the total that you can deposit (in a single tax year) is £15,000. The money that is withdrawn does not retain any clasification of being NISA money.